Under auto-enrolment law, minimum contributions to both (group) personal pension schemes and trust-based defined contribution (DC) schemes will increase from 6 April 2018 and again from 6 April 2019. These increases were originally meant to have taken place from 1 October 2017 and 1 October 2018 but the government postponed them for 6 months in each case to align with the future tax years.

Employers that currently only make the minimum contributions will therefore need to be ready for these increases so that the correct employer and employee contributions are paid to the pension schemes from these dates.

The increases based upon employees' "qualifying earnings" (between £5,876 and £45,000 in tax year 2017/18) will be as follows:

Period

Employer contribution (minimum)

Employee contribution (minimum)

total contribution (minimum)

Currently until 5 April 2018

1% 1% 2%
6 April 2018 to 5 April 2019 2% 3% 5%
6 April 2019 onwards 3% 5% 8%

If employers have decided to use another definition of earnings for auto-enrolment and have certified their schemes to that effect, the increases will be different to those that only use "qualifying earnings". For example, for employers that calculate contributions based on gross earnings (not including bonus, overtime or commissions) the increases will be as follows:

period

Employer contribution (minimum)

Employee contribution (minimum) total contribution (minimum)

Currently until 5 April 2018

2% 1% 3%
6 April 2018 to 5 April 2019 3% 3% 6%
6 April 2019 onwards 4% 5% 9%

What should you do to prepare?

Employers should review contracts and pensions announcements to see if the increased contributions apply automatically to their workers and employees. If not, then employers may need to consider changes to contracts to increase member contributions which can also trigger a minimum 60 day consultation before the change can be made.